If you have resolved to make your company more valuable in 2017, you may want to think hard about how your customers pay.
If you have a transactional business model where customers pay only once for their purchase, expect your company’s value to be a single-digit multiple of your pre-tax profit.
Most people think of starting a business as risky, but unless you invest a significant amount of start-up cash in your venture, you’re not really risking much other than your time.
That changes if you’re lucky enough to get your business off the ground. As your company grows, you start to risk more and more of your wealth because the business you’ve built is actually worth something. The longer you hang on to it, the more you have to lose.
You can now buy a subscription for most consumer products from dog food to flowers. Music subscription services are booming as our appetite to buy tracks is replaced by our willingness to rent access to them. Starbucks now even offers coffee on subscription.
Why are so many companies switching to a subscription business model? The main reason is that recurring revenue increases the value of your business, but there are some other, less obvious, benefits to add a subscription offering to your business.
When you put together next year’s financial plan, will your growth come from selling more to your existing customers or finding new customers for your existing products and services?
The answer may have a profound impact on the value of your business.
Summer is here, and although it may seem strange, now may be the perfect time to increase the value of your company.
The most valuable companies are the ones that can run independently of their owner. A buyer will pay a premium for a company that runs on autopilot and levy a steep discount for a business that is dependent on its owner.
You’re considering whether buying and owning a business is right for you. You may know what your objectives are, what you’re willing to pay and what your income requirements are. But do you know that businesses in the same industry, of the same age, same size and same profitability can have major variations in valuation among them?
This is not to say that one company is overvalued and another isn’t. It is to say that seemingly similar companies may be very different in ways that both affect their value and how they fit with your objectives.
Turning your service offerings into standardized products increases the value of your business. When these standardized products are sold on a recurring basis you can much more easily train staff to both sell the products and perform the services required. This reduces the dependency of the company on you as an owner, and allows your company to scale much more easily. Furthermore, by offering products that can be sold on a recurring basis, you’re increasing the value of your business since recurring revenue streams are predictable and repeatable.
Yet many private companies only get financial statements, which is a scorecard for their business, once a year.
Performance measurement is the main reason why all companies should prepare and review financial statements at least monthly.
Three main areas should be tracked: Cash flow, profit generation and capital position (i.e. the ability to withstand risks)
